Transporting cargo overseas can be a risky proposition for businesses specialising in import and export. Hazardous weather conditions, disruptions to the supply chain, and cargo losses are just some of the risks you have to contend with when moving your goods via sea or air. Moreover, when it comes to damaged cargo, international law generally favours the carriers, not exporters – these regulations are put in place to promote global trade.
To put things into context, an average of 1629 shipping containers were lost at sea in 2021, partially due to several weather-related events during the winter of 2020 to 2021. For instance, the One Apus lost nearly 2000 containers upon encountering a storm off Hawaii. Besides, who can forget the infamous Suez Canal blockage that held up global trade, compounding the supply chain crisis in 2021?
These incidents only highlight the importance of marine cargo insurance for import and export companies in the dynamic world of international trade. In this article, let us delve into what marine cargo insurance is and the potential pitfalls you may face when neglecting this essential aspect of your shipping strategy.
What is marine cargo insurance?
The term ‘marine cargo insurance’ can be misleading. Although the policy states ‘marine insurance’, it does not restrict the means of transport. Whether your goods are transported by Air, Rail, Road, or Sea, you can ensure coverage for loss or damage by transferring the liability of shipping your products to an insurance provider when you purchase this type of cargo insurance.
What are the potential pitfalls of neglecting marine cargo insurance?
1. Financial loss arising from lost or damaged goods due to unforeseen circumstances
There are various instances where the carrier cannot be held liable for damages – perils of the sea, acts of God, acts of war, and insufficient packaging or marks are some of the exclusions importers and exporters must deal with. Moreover, when multiple personnel are handling your cargo during each aspect of the shipment, it can be challenging to prove what and who is responsible for the damage.
Even if the carrier is responsible, their liabilities are restricted. As such, you will recover cents on the dollar in most cases. So, whether you are an importer who has paid for all or part of the goods prior to receiving them or an exporter who has not yet received payment for your products at the time of shipment, you could be staring at a significant financial loss if the cargo is lost or damaged during transit.
Can you imagine the loss you may incur if you were involved in either scenario and your perishable goods were stuck in transit during the Suez Canal blockage in 2021? Fortunately, marine cargo insurance can help avert such risks, safeguarding your investments from any unforeseen circumstances.
2. General average and expediting the release of your cargo
General average is another risk that exporters must manage and contend with for international trade. This principle of maritime law requires all cargo owners to share in a loss. For example, if a ship gets stuck and cargo must be abandoned overboard, you must split the cost of the loss even if your goods were not affected.
With marine cargo insurance, this responsibility shifts to your insurer. They will have to post a bond or cash deposit to expedite the release of your cargo following a general average, thus reducing your financial strain.
3. Contractual and legal requirements
International contracts often stipulate that the seller is responsible for providing marine cargo insurance to safeguard the buyer’s interest during transit. That is especially true for goods sold via CIP (Carriage and Insurance Paid To) and CIF (Cost, Insurance, and Freight).
Neglecting your obligation could jeopardise the smooth completion of the sale or expose you to financial loss if the cargo is lost or damaged during transit. Worse, your business could incur potential legal action, affecting your company’s reputation in the competitive world of global trade.
As you can see, marine cargo insurance benefits both importers and exporters, helping businesses navigate the complex landscape of global trade seamlessly by safeguarding them against the uncertainties accompanying the transportation of goods across borders and seas. With the peace of mind that comes with this insurance, you can focus on what is most crucial to you – running your company.
However, there are various complexities surrounding the terms and conditions of carriage. Therefore, it is imperative that you understand how liability works when your cargo is at sea so that you can adopt best practices to mitigate risks from potential exposures. Our team of insurance brokers in Singapore specialises in all forms of marine risk solutions. Contact us if you require help making an informed decision about your marine cargo insurance.
